Dubai Appoints Banks to Raise $800 Million From Selling Road Toll Receipts

Dubai hired four banks including
Citigroup Inc. (C) to raise $800 million in financing backed by road
toll receipts to help fund transport projects in the emirate.

The Department of Finance also appointed Dubai Islamic Bank
PJSC (DIB)
, Emirates NBD PJSC (EMIRATES) and Commercial Bank of Dubai PSC (CBD) to
arrange the dual-currency, six-year financing, the Dubai
government’s Media Office said in a statement. The transaction,
including conventional and Islamic portions, may be syndicated
to more lenders.

Dubai is recovering from the global credit crisis that
battered its property industry and slowed trade and tourism,
taking it to the brink of default in 2009. Economic growth in
the emirate will accelerate to 4 percent in 2011 from 2.2
percent in 2010, according to Citigroup.

The toll-road deal is “an interesting and very positive
initiative given the securitization involved,” said Chavan
Bhogaita, head of markets strategy at National Bank of Abu Dhabi
PJSC (NBAD)
in a e-mail. Dubai is using “more innovative funding
strategies” to take advantage of the assets and cash flows that
it has, he said.

Securitization is a process of issuing new securities
backed by loans, mortgages, credit card debt or other assets
like future income streams from a road toll system.

Cut spending

The government aims to cut spending this year in a bid to
shrink its budget deficit and forecasts a gap of 3.78 billion
dirhams ($1 billion) for the year, down from 5.99 billion
dirhams projected for 2010, it said in January. Spending is
projected at 33.7 billion dirhams, down 4.9 percent from the
2010 forecast published in a government bond prospectus in
September. The deficit for 2011 is within the targeted ceiling
of 3 percent of gross national product, it said.

Dubai, the second-biggest of the seven states that make up
the United Arab Emirates, had to seek assistance from
neighboring Abu Dhabi after the credit crisis pushed property
prices down by more than half from their peak in 2008, and
frozen credit markets forced some state-owned companies to delay
loan payments. Dubai World signed a final agreement with its
creditors in March to restructure about $25 billion of debt.

Dubai’s five-year dollar bond rose, sending the yield to a
record low. The yield on the 6.7 percent note maturing in
October 2015 dropped 16 basis points to 5.68 percent as of 2:44
p.m. in the emirate, according to Bloomberg composite prices.

Bond Sale

Dubai’s government last sold bonds in September, when it
raised $1.25 billion in a two-part bond sale in its first
sovereign debt issue since the Dubai World credit crisis shocked
global markets in 2009. Its five-year, $500 million note was
priced to yield 6.7 percent, while the $750 million 10-year bond
was priced to yield 7.75 percent. The bonds generated more than
370 orders valued at about $5 billion, it said then.

Separately, Dubai Electricity Water Authority, the state-
owned utility, said today it paid a 5.4 billion-dirham
syndicated loan ahead of schedule. About 2.7 billion dirhams of
the loan was payable on Oct. 13, DEWA said in an e-mailed
statement.

To contact the reporters on this story:
Arif Sharif in Dubai at
asharif2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at
Eevans3@bloomberg.net